Beruflich Dokumente
Kultur Dokumente
PROJECT REPORT
ON
RISK MANAGEMENT
PRESENTED BY:
SUBMITTED TO:
PRO:BHAVIN PANDYA
S.V.INSTITUTE OF MANAGEMENT
KADI.
PREFACE
S.V.Institute of management, Kadi Page 1
Risk Management
A man without practical knowledge is just like a rough diamond. To shine like
a real diamond one must have practical exposure of what he has learnt. For the
management students, theoretical knowledge is just like lock without key, so practical
knowledge is of utmost importance.
It is quite true that world outside; your cozy home is many times quite
different from what you have perceived. Similarly it is possible that theoretical
knowledge acquired in the classroom may differ from the practical knowledge.
It is our pleasure to present this project work after we had finished my summer
training at SSJ FINANCE & SECURITY LTD. This training has expanded our
horizon of knowledge in practical as well as theoretical, which is vital for student in
management level studies. Only the basic understanding of the finance management is
not sufficient but their application is also equally important.
ACKNOWLEDGEMENT
Last but not least, we are thankful to those who have directly of indirectly
helped us to make this project a great journey in the ocean of practical world.
Aruna chavda(02)
Shruti velani(58)
Our business is built upon three important cornerstones our Client, Business
Associates and Employees. Our philosophy is unique and clearly defined
Our employees are what set up start. We are all here for one reason to serve
our clients’ best interests. It is through leadership and accountability across our
organization that we establish a common direction, encourage creative
collaboration and provide an inspiring environment for our people.
VISION
Our vision is to be a leading wealth management service provider acting solely
in the financial interest of our clients through a nationwide network of qualified
professionals and business associates.
INDEX
1 Preface I
2 Acknowledgement II
3 Executive summary 1
4 Risk Management 2
• Introduction
• Types of risks
5 BSE30 Companies 11
• Short term analysis
• Long term analysis
6 CAPM model 24
7 Measurement of market risk 32
• Behavior of return over time
8 Security market line 34
9 Mutual funds scheme’s portfolios 38
10 Conclusion 44
11 Bibliography 45
EXECUTIVE SUMMARY
An investor can also get a secure investment with his financial planning
and well diversified portfolio investment in this report you will realize certain
best judgmental, analytical, and risk averse nature from both risk management
and portfolio investment. Savings form an important part of the economy of any
nation. With the savings invested in various options available to the people, the
money acts as the driver for growth of the country.
The options for investment, Banks, Post office schemes, Company fixed
deposits are essentially for the risk-averse, people who think of safety and then
quantum of return, in that order. For the brave, it is dabbling in the stock
market. Stock markets provide an option to invest in a high risk, high return
game. While the potential return is much more than 10-11 percent any of the
options for investment, Banks, Post office schemes, Company fixed deposits can
generally generate, the risk is undoubtedly of the highest order. But then, the
general principle of encountering greater risks and uncertainty when one seeks
higher returns holds true. However, as enticing as it might appear, people
generally are clueless as to how the stock market functions and in the process
can endanger the hard-earned money.
In our project we have included what kind of risk is there in the market
and different kinds of risks. We also include how to minimize risk. We calculated
eleven companies’ short term and long term analysis. In this analysis we have
calculated 8 years beta on a daily basis. We apply CAPM model with the help of
beta calculation. According to CAPM how much company can earn return as
against the market return.
RISK MANAGEMENT
In a simple case of a trading business that involves purchase of goods for sale with
some administrative and transportation costs, cash inflows would arise from sale. The
variation in sales volume and unit price realization would create uncertainties in cash
inflows.
Uncertainties associated with risk elements impact the net cash flow of any business
or investment. Under the impact of uncertainties, variations in net cash flow take
place. This could be favourable as well as unfavourable.The possible unfavourable
impact is the “Risk” of the business.
Lower risk implies lower variability in net cash flow with lower upside and down side
potential.
Zero risk would imply no variation in net cash flow. Return on zero risk investment
would be low as compared to other opportunities available in the market.
IMPORTANCE:
It is important because for any firms money is a matter of thing. Without it there is
nothing like business and specially when its comes due to investment of people then it
need to have bird eye view at every position. sometimes the customers may not like to
pay margin or due to lapses of time its stock goes in the auction market but because it
can creates risk for all those stake holder who are a part of business the main aim of
any broking firm is must to be to provide sound and easy investment opportunities
which can be utilized by all people those who have capacity to put their many for the
countries development in indirect way for one broker like SSJ Finance risk comes in
these ways.
Here the risk refers to the credit risk associated with customer if the broker provides
exposure on certain assets and margin then such risk of providing exposure comes in
to pictures which need to solved so that the company can have good image in the
eyes of law and stock market regulator like sebi.
India infoline provides different limit which depends upon the client and his trading
volume now just thing that India infoline branch manager increases the time
requirement for any delivery based scripts client is good investor in the market but the
future is highly uncertain such stock may or may not increase in the market and even
due to certain circumstances client even not able to pay then such script goes in to
auction trading for settlement purpose because after all broker is one intermediary
between stock market and investors and their money is at stake and it is not of client
money.
When one client applies for demand account then he need to give detail about his own
bank account he need to give copy of passbook (bank statement ) for last six months
so that if any claim arises then they can bound you legally to ay that but if client does
not have any bank balance then it means that such amount remains unclear and if the
client becomes insolvent then it is at brokers risk because the stock exchange will
make clime not against the person but against the member
WHY
&
RISKS:
1. SYSTEMATIC RISK
An investment risk that is common to all securities of the same class, which
cannot be avoided by diversifying one's portfolio. Economic, social, or political
factors will cause price fluctuations of all shares alike. That is why the prices of
shares in the market tend to rise and fall together. Nevertheless certain firms will be
affected by systematic risk more than others; firms whose sales fluctuate widely,
firms financed largely with borrowed money, rapidly growing firms, firms with low
current ratios, and small firms.
2. OPERATIONAL RISK
3. MARKET RISK
Market risk is happens because of the changes that happens in the market and which
cqan not be avoided by idver5sifying the assets in to the other side.
The risk that the seller of a security or funds delivers its obligation but does
not receive payment or that the buyer of a security or funds makes payment but does
not receive delivery. In this event, the full principal value of the securities or funds
transferred is at risk.
6.CUSTODY RISK
The risk of loss of securities held in custody occasioned by the insolvency, negligence
or fraudulent action of the custodian or of a sub-custodian.
7. INTEREST RISK
The risk that movements in the interest rates may lead to a change in expected return.
Such risk affects the general market condition due to the prevailing inflationary
situation.
9. UN SYSTEMATIC RISK
Business risk is that kind of risk which is not prevalent in the market but
which is unique for the industry or for the particular company and which can be
avoided by analyzing particular market condition in the market Business risk
Business risk is, easily understood. It is the potential for loss of value through
competition, mismanagement, and financial insolvency. There are a number of
industries that are predisposed to higher levels of business risk (think airlines,
railroads, steel, etc).so it’s the duty of investor to read about the company from any
source who provide them knowledge.
A investor must keep in mind the valuation of a company The business may
indeed be wonderful, but if it experiences a significant sales decline in one quarter or
does not open new locations as rapidly as it originally projected, the stock will decline
significantly. This is a throw-back to our basic principle that an investor should never
ask "Is company ABC a good investment"; instead, he should ask, "Is company ABC
a good investment.
You have done your home work very well and found an excellent company
that is selling far below what it is really worth, buying a good number of shares. It’s
January, and you plan on using the stock to pay your April tax bill. By putting
yourself in this position, you have bet on when your stock is going to appreciate. This
is a financially fatal mistake. In the stock market, you can be relatively certain of what
will happen, but not when. So it’s your first duty to read the news of your stocks time
to time if by chance u got some bad news of stock which has in your portfolio then
don’t be fanatic to this stock sell as early as possible so that your portfolio will save of
bad shares. and put your money on save stock which you got knowledge Consider the
following: let us suppose you had shares of Infosys, Syatam, Tisco, and Acc at a
decent price in 1994 yet had to sell the stock sometime later in the year, you would
have been devastated by the crash that occurred on BLACK MONDAY (18 may2005)
Your investment analysis may have been absolutely correct but because you imposed
a time limit, you opened yourself up to a tremendous amount of risk.
Risk relative to operations that are not reflected in variation of the institutions
assets or liabilities, when undertaken, but are reflected when profit or loss occurs.
Such things happens because of the ineffective analysis of the assets and liabilities
and its nature for example if one company has assets in terms of machinery and after
certain year the company is not able to use and they depreciated but now they have no
fund to install their machinery for these reasons it is prudent to analyze the balance
sheet just because the assets and liabilities is equal or company has assets is not
enough but the required thing is that in future such resources is must be available for
its use.
The risk that deficiencies in information systems or internal controls could result in
unexpected losses. Operational risk may be systematic or unsystematic and depends
upon the company such risk can be avoided buy effectively following the general
market condition.
• Counterparty risk: The risk that between the time a transaction has
been arranged and the time of actual settlement, thecounterparty to the
transaction will fail to make the appropriate payment.
• Credit risk: The risk that a counterparty will not settle an obligation for
full value, either when due or at any time thereafter. Credit risk includes
pre-settlement risk (replacement cost risk) and settlement risk (Principal
risk).
When considering the purchase of a stock, investors should find answers to some key
questions.
Price History How much have other investors been willing to pay for the stock in the
past?
Price Target How much are investors likely to pay for the stock in the future?
Catalysts what catalysts will change investors' perceptions of the stock in the future?
Recent Developments Check out what are the recent developments in the company
ITC
ITC
0.2500%
0.2000%
GROWTH YEARLY
0.1500%
0.1000% Sensex
0.0500% ITC
0.0000%
-0.0500% 2002- 2003- 2004- 2005- 2006- 2007-
03 04 05 06 07 08
-0.1000%
YEAR
INTERPRITATION:
As seen in the above graph the that the sensex in the year 2002-03
gives return is higher than the ITC company return but in the next year sensex is
decreasing but the ITC return is increased till 2004-05. ITC’s growth is increased by
0.1638% in year 2004-05 as compare to 2002-03.But as the sensex is go down
slightly ITC go down more as compare to sensex till 2006-07. In year 2007-08 sensex
goes in minus but still ITC give positive return which is good for the investors. So
from the above data we can say that ITC well performed in last year.
ONGC
ONGC
0.400%
0.350%
0.300%
MARKET RETURN
0.250%
0.200%
SENSEX
0.150%
0.100% ONGC
0.050%
0.000%
-0.050% 2002- 2003- 2004- 2005- 2006- 2007-
-0.100% 03 04 05 06 07 08
YEARS
INTERPRITATION:
As in the above graph ongc is well performed company. It gives the same result as the
sensex give almost the same return. As we can see that ongc’s growth rate is increased
by 0.219% in year2005-06 as compared to2002-03. But as the sensex goes down ongc
gives negative return in year 2007-08. so from that we can say that ongc is highly
chang as the sensex.
MARUTI SUZUKI
MARUTI
YEAR SENSEX SUZUKI
2003-04 0.13% 0.39%
2004-05 0.19% 0.08%
2005-06 0.16% 0.27%
2006-07 0.14% 0.04%
2007-08 -0.04% -0.06%
MARUTI SUZUKI
0.50%
0.40%
GROWTH YEARLY
0.30%
SENSEX
0.20%
MARUTI SUZUKI
0.10%
0.00%
2003- 2004- 2005- 2006- 2007-
-0.10%
04 05 06 07 08
YEAR
INTERPRITATION:
BHEL
BHEL
0.40%
0.30%
GROWTH YEARLY
0.20%
SENSEX
0.10%
BHEL
0.00%
2002- 2003- 2004- 2005- 2006- 2007-
-0.10%
03 04 05 06 07 08
-0.20%
YEAR
INTERPRITATION:
As seen in the above chart we can say that the growth rate in market is
lower than BHEl. In year 2002-03 the market growth is lower than the bhel but in
year 2004-05 market return is increasing but the bhel growth is decresed by 0.08%. in
year 2005-06 its return increased by 0.06% and than again increased by 0.28% in year
2006-07. At last in year 2007-08 both are in decresing trend. So from above we can
say that bhel is highly affected by market fluctuations.
RELIENCE INDUSTRES
REL IND
0.30%
0.25%
0.20%
GROWTH YEARLY
0.15%
0.10%
SENSEX
0.05%
REL IND
0.00%
-0.05% 2002- 2003- 2004- 2005- 2006- 2007-
-0.10% 03 04 05 06 07 08
-0.15%
-0.20%
YEAR
INTERPRITATION:
As from the above diagram we can say that reliance industry is highly
affected by changes in market. We can see that as sensex go up reliance performance
also go up and in year 2005-06 sensex go negative reliance also go negative. In year
2005-06 its growth rate is decresed by 0.32% from previous year.but again in next
year it is increased by 0.40% in next year. In year 2007-08 market growth rate is
negative but still it has positive growth.
HDFC BANK
HDFC BANK
0.300%
0.250%
GROWTH YEARLY
0.200%
0.150% SENSEX
0.100% HDFC BANK
0.050%
0.000%
-0.050% 2001- 2002- 2003- 2004- 2005- 2006- 2007-
02 03 04 05 06 07 08
YEAR
INTERPRITATION:
CIPLA
CIPLA
0.50%
GROWTH YEARLY
0.00%
2003-04 2004-05 2005-06 2006-07 2007-08
SENSEX
-0.50%
CIPLA
-1.00%
-1.50%
YEAR
INTERPRITATION:
As we see in the above diagram cipla has negative growth rate in year
2003-04 but in the next year its growth rate is increased by 1.53%. it has highest
growth rate is in year 2005-06 but after that it is decreased by 0.45% in year 2006-
07.at that time the market growth is positive but cipla has negative growth rate. Same
is in year 2007-08 cipla is positive but market is negative. So from that we can say
that cipla is not much affected by market.
WIPRO
WIPRO
0.20%
0.15%
GROWTH YEARLY
0.10%
0.05% SENSEX
0.00% WIPRO
-0.05% 20 20 20 20 20 20 20 20
00- 01- 02- 03- 04- 05- 06- 07-
-0.10%
01 02 03 04 05 06 07 08
-0.15%
YEAR
INTERPRITATION:
As we see in the above diagram both wipro and market have a negative
growth rate but in year 2000-01 wipro’s growth rate is highly negative than the
market. In year 2002-03 it is increased by 0.06% and than continuously increased till
2004-05.But after that in year 2005-06 it is decreased by 0.23%. In this year market
growth rate is increased and positive but wipro is negative and decreased. But in year
2006-07 it is increased by o.18% at that time market is decreased by 0.05%. Than
both are decreased but both are positive in last year. So from all this we can say that
SATYAM COMPUTERS
SATYAM
YEAR SENSEX COM
2001-02 -0.23% -0.67%
2002-03 -0.02% 0.16%
2003-04 0.10% 0.13%
2004-05 0.14% 0.31%
2005-06 0.16% 0.18%
2006-07 0.16% 0.11%
2007-08 0.04% -0.01%
SATYAM COM
0.40%
0.20%
GROWTH YEARLY
0.00%
20 20 20 20 20 20 20 SENSEX
-0.20%
01- 02- 03- 04- 05- 06- 07- SATYAM COM
-0.40% 02 03 04 05 06 07 08
-0.60%
-0.80%
YEAR
INTERPRITATION:
As seen in the above line chart both market and satyam company has negative growth
rate but satyam has more negative growth rate as compare to market. But in next year
satyam is increased by 0.83% while market is increased by 0.21%. than again it is
decreased by 0.03% while market is increased by 0.12%. in year 2004-05 satyam has
highest growth rate and than it is decreased year by year, but marke is increased
till2006-07 and after that it isdecresed by 0.12%. so from that we can say that it is not
SBI
SBI
1.00%
GROWTH YEARLY
0.80%
0.60%
SENSEX
0.40%
SBI
0.20%
0.00%
-0.20% 20 20 20 20 20 20 20 20
00- 01- 02- 03- 04- 05- 06- 07-
01 02 03 04 05 06 07 08
YEAR
INTERPRITATION:
TATA STEEL
TATA STEEL
0.35%
0.30%
0.25%
GROWTH YEARLY
0.20%
0.15%
SENSEX
0.10%
TATA STEEL
0.05%
0.00%
-0.05% 2002- 2003- 2004- 2005- 2006- 2007-
-0.10% 03 04 05 06 07 08
-0.15%
YEAR
INTERPRITATION:
As seen in the above chart Tata steel has high growth rate as compare
to market growth in year 2002-03 but in next year market growth rate is down by
0.02% but still Tata steel increased by 0.06%. In next year market is go up by 0.08%
at that time Tata steel is decreased by 0.27%. in next year when Tata is increased
market is decreased and at last in year 2007-08 market is negative at that time Tata
steel is decreased but still it has positive growth rate. So from this we can say that
Tata steel is not much affected by market fluctuations and it is well performing.
LONG-TERM ANALYSIS
SHORT
SEN AVG COM AVG NAME COM
0.09% 0.09% O Ongc
0.09% 0.15% M MARUTI SUJ
0.09% 0.08% I ITC
0.09% 0.04% RA RANBAXYLAB
0.09% 0.11% BH BHEL
0.09% 0.11% RC REL COM
0.09% 0.16% RI REL IND
0.09% 0.13% HD HDFC BANK
0.09% -0.04% D DLF
0.09% 0.05% C CIPLA
0.09% 0.00% W WIPRO
0.09% 0.10% S SATYAM COM
comparision
0.20%
0.15%
market return
0.10%
0.05%
0.00%
o M I RA BH RC RI HD D C W S TM S TS
-0.05%
-0.10%
company return
INTERPRITATION:
From the above table we can see that ONGC, ITC, BHEL, Rel communication, and
Satyam computers gives almost same return as market gives. But Ranbaxy
laboratories, DLF, CIPLA, Wipro, Tata motors give lesser return than market return.
While Maruti Suzuki, Reliance industries, HDFC bank, SBI and Tata steel gives
INTRODUCTION:
In a valuation exercise, the discounting factor (derived from the expected rate of
return) is of crucial importance. There have been numerous discussions and debates
on the approach to arrive upon this discounting factor. From predominantly relying on
“instinct” to the new generation of scientific models, there has been a multitude of
thoughts to arrive upon one “appropriate methodology”. The earlier edition described
in detail the various methodologies which have evolved in this domain. A conclusion
was drawn on the practicality and efficacy of Capital Asset Pricing Model (CAPM)
over other models.
This paper explores the practical issues in arriving at the discounting factor using
Capital Asset Pricing Model. There is a conscious effort to examine the availability of
appropriate data to be used in the model from the Indian perspective. To facilitate
such critical examination, a past case has been selected from the universe of
valuations conducted by Haribhakti Group. The names and details have been
appropriately changed keeping in mind the client confidentiality requirements.
As discussed earlier, the Capital Asset Pricing Model (CAPM) is the most preferred
risk/return model. Therefore, the expected rate of return of the stock selected can be
calculated as:
Expected return on investment = Risk free rate + Beta * (Market return - Risk free
rate)
2. Beta
The valuation of the company selected was undertaken under the going concern
assumption, which is based primarily on the future expected cash flows which the
company generates. These cash flows were projected over a time spectrum, and
discounted to the present values using the discounting factor. The present values were
aggregated to arrive on the value of business.
It is thus rational to use different discounting rate for cash flows of different period, as
the yield curve is never flat across the time horizon. However, it is not practical to
match the relevant interest rates to the time period of the cash flows. An alternative to
overcome this issue is to compute the duration of the cash flows, and use the
corresponding rate for calculation.
The 9.39% GOI 2011 is priced at Rs 106.95/- thereby yielding 7.69% (as on 30th
June, 2006).
Source: nseindia.com
low beta, or a stock with low volatility to have high beta. This is because a stock can
be highly volatile, but so could the market, and therefore have a low beta.
--------------------------------------------------
To calculate the beta of the stock, it was important, not only to select a broad based
index, but also an appropriate time period for consideration. The covariance of the
stock was derived from the historical closing price. A six year historic price
movements of the stock was considered to calculate the covariance of the stock with
the market portfolio.
The CAPM describes the market portfolio as having each and every asset which is
traded in the market. Therefore, in order to calculate the variance of the market
portfolio, a broad based, diversified index should be considered. However, if there is a
sector specific index for the stock e.g., BSE-Teck index, then it would be appropriate
to consider it as the market portfolio. This is because the broader market may have
delivered 20% returns over a certain period of time, but the sectoral index could have
outperformed the market in a big way. So going forward, the investor may expect a
higher return from say a technology stock, than the returns from the market.
Due to the absence of a Gems and Jewellery index, the S&P CNX 500 was considered
as the market portfolio. This is because the index not only includes a large number of
companies in various sectors of the economy, but also represents about 92% of total
market capitalization. The closing rates of the index over the last six years were
considered to find the variance of the market portfolio. In emerging markets like
India, it is important not to go back too much in time. Since the markets are so
susceptible to change, that it would not give a fair picture.
3.Risk premium:
It is the premium that an investor would demand for investing in equities as an asset
class as opposed to the risk free investment. If an investor can earn 8% returns by
Market return is derived from the historical returns observed for similar asset class or
the broad market. As explained earlier S&P CNX 500 has been considered as a
similar asset class. For calculating the market return, the average daily returns of S&P
CNX 500 over the last 6 years were computed. These daily returns were then
annualized (average daily return * 365).
Bringing this together CAPM was used to estimate the expected return on a stock for
the future.
Even though statistical studies have proven that CAPM essentially explains only
about 7% of the stock price movements, it is still favored over the other models.
While both the Arbitrage Pricing model and the Multi- factor model do great work at
explaining differences in past returns, as they do not restrict themselves to one factor,
as CAPM does. However, this extension to multi factors makes both the models
complex and impractical to use in the real world.
where
Beta measures the volatility of the security, relative to the asset class. The equation is
saying that investors require higher levels of expected returns to compensate them for
higher expected risk. You can think of the formula as predicting a security's behavior
as a function of beta: CAPM says that if you know a security's beta then you know the
value of r that investors expect it to have.
Naturally, somebody has to verify that this simple relationship actually holds true in
the market. Part of the question is how few classes you can get away with: whether
you can use a very coarse division into just "stocks" and "bonds", or whether you
need to divide much further (into "domestic mid-cap value stocks", and so on). There
are also ongoing attempts at "building better betas" that incorporate company debt and
other traditional valuation measures, instead of relying solely on past volatility, to
measure risk. All of this is a full-time job for academic modern portfolio theorists
(and deriding the whole effort is a popular hobby for some traditional stock analysts:
how could a magnificent company equal a mediocre one times beta? To them, CAPM
seems like a very blunt instrument.)
CAPM has a lot of important consequences. For one thing it turns finding the efficient
frontier into a doable task, because you only have to calculate the covariances of
every pair of classes, instead of every pair of everything.
Another consequence is that CAPM implies that investing in individual stocks is
pointless, because you can duplicate the reward and risk characteristics of any
security just by using the right mix of cash with the appropriate asset class. This is
why followers of MPT avoid stocks, and instead build portfolios out of low cost
index funds.
One point about that last paragraph. If you are trying to duplicate an expected return
that's greater than that of the asset class, you have to hold "negative" cash, meaning
you have to buy the index on margin. This is consistent with the big message of MPT
- that trying to beat the index is inherently risky).
COMPANES RF RE Beta Rm
ONGC 9.447% 18.0% 1.00 18%
MARUTI SUJ 9.447% 9.21% -0.03 18%
ITC 9.447% 9.45% 0.02 18%
RANBAXYLAB 9.447% 9.07% -0.04 18%
BHEL 9.447% 11.44% 0.07 18%
Limitations:
• Beta does not explain a very high percentage of the variance in return among
security.
• The other limitation is in CAPM model we use historical returns as proxies for
expectations. This assume that the expected return will be the same as the
realize return.
In our project we calculate beta of 11 securities and among them only ongc is
came under Rr securities which is highly volatile security and the rest are comes
under Rc category which less volatile securities. It means if market is expected to
increase by 12% than ongc increases by same as it has beta 1times. And other
securities are increases by less than 12% as they had beta less than 1. The securities
which has negative beta than their returns are decreased.
Risk premium is a product of the level of risk,β, and the compensation per unit of risk,
(E(Rm)-Rf)
Suppose stock J has a beta of 1.4.If the risk free rate is 10 percent and the expected
return on the market portfolio is 15 percent, the expected return on the stock J is:
10+1.4(15-10)=17 percent
It is obvious that, ceteris paribus, the higher the beta,the higher the expected return,
and vice versa.
The above stated graph shows that the security market line for the basic data given
above.In this figure, the expected return on three securities A,B and C is shown.
Security A is a defensive security with a beta of 0.5.Its expected rate of return is 12.5
percent.Security B is a neutral security with a beta of 1.Its expected rate of return is
equal to the rate of return on the market portfolio.Security C is an aggressive security
with a beta of 1.5.Its expected rate of return is 17.5percent.(Generally, if the beta of a
security is less than 1it is characterized as defensive; if it is equal to 1it is
characterized as neutral; and if it is more than 1 it is characterized as aggressive.)
BSE Companies:
COMPANES RF BETA RE
ONGC 9.45 1.00 18.00
MARUTI SUJ 9.45 -0.03 9.21
ITC 9.45 0.02 9.45
RANBAXYLAB 9.45 -0.04 9.07
BHEL 9.45 0.07 11.44
REL COM 9.45 0.02 9.60
REL IND 9.45 0.02 9.88
HDFC BANK 9.45 0.09 10.20
DLF 9.45 0.44 13.20
CIPLA 9.45 -0.07 8.89
WIPRO 9.45 0.21 11.26
SATYAM COM 9.45 0.13 10.58
TATA MOTORS 9.45 -0.05 9.03
SBI 9.45 -0.08 8.74
TATA STEEL 9.45 0.08 10.09
sml line
20.00
18.00
16.00
return on stock
14.00
12.00
10.00 RE
8.00
6.00
4.00
2.00
0.00
-0.20 0.00 0.20 0.40 0.60 0.80 1.00 1.20
beta
Interpretation:
Ra= Rf+βa(Rm-Rf)
As shown in the above table that the securities which beta is less than one they
called defensive securities, the securities which has beta securities one are called
neutral securities and the securities whose beta is more than one are called aggressive
security. As we can see that ONGC has one Beta it means if market is increase by 1%
than ongc will increase by 1%. The securities which has negative beta has negative
co-relation with market it means if market increases than that particular security is
decreases.
Broadly, the investment process consists of two tasks. The first task is security
analysis which focuses on assessing the risk and return characteristics of the available
investment alternatives. The second task is portfolio selection which involves
choosing the best possible portfolio from the set of feasible portfolios. Here we have
shown some mutual fund schemes with its diversified portfolios. Each portfolio
consists different categories risky securities. These all portfolios consist aggressive
securities, defensive securities and also neutral securities.
Equity Portfolio
Interpretation:
Here in the above table we can see the portfolio of the Fidelity Equity Fund.
Here we can see that as per our Beta calculation Reliance, BHEL,HDFC has positive
beta it means that they have positive co-relation with market while SBI,Cipla have
negative beta it means negative co relation with market. So in this way Fidelity has
made a portfolio which covers both aggressive and defensive stock so that they can
minimize the risk and can get maximum return.
Equity Portfolio
Interpretation:
Here in the above table we can see the portfolio of the Fidelity Equity
Fund. Here we can see that as per our Beta calculation ONGC has positive beta it
means that they have positive co-relation with market while SBI have negative beta it
means negative co relation with market. So in this way Fidelity has made a portfolio
which covers both aggressive and defensive stock so that they can minimize the risk
and can get maximum return.
Equity Portfolio
Interpretation:
Here in the above table we can see the portfolio of the Fidelity Equity Fund.
Here we can see that as per our Beta calculation Reliance, BHEL, ITC, HDFC etc. has
positive beta it means that they have positive co-relation with market while other
some securities have negative beta it means negative co relation with market. So in
this way Fidelity has made a portfolio which covers both aggressive and defensive
stock so that they can minimize the risk and can get maximum return.
Kotak 30:
Equity Portfolio
*YTD=
Company Year to date return for current calendar year.
% of Assets P/E YTD
Interpretation:
Here in the above table we can see the portfolio of the Fidelity Equity
Fund. Here we can see that as per our Beta calculation ONGC, Reliance, BHEL,
HDFC, ITC, Tata Steel etc. has positive beta it means that they have positive co-
relation with market while other securities have negative beta it means negative co
relation with market. So in this way Fidelity has made a portfolio which covers both
aggressive and defensive stock so that they can minimize the risk and can get
maximum return.
Equity Portfolio
*YTD=
Company Year to date return for current calendar year.
% of Assets P/E YTD
Interpretation:
Here in the above table we can see the portfolio of the Fidelity Equity
Fund. Here we can see that as per our Beta calculation HDFC has positive beta it
means that they have positive co-relation with market while Maruti Suzuki has
negative beta it means negative co relation with market. So in this way Fidelity has
made a portfolio which covers both aggressive and defensive stock so that they can
minimize the risk and can get maximum return.
CONCLUSION
In stock market it is not possible for everyone to come and trade because
it is riskier task they should know how the particular script fluctuates. From
whole our project we can conclude that the security which has positive
correlation with the market are generally give higher return than negative
correlation securities. But, positive correlated securities with the market are
highly volatile securities. So they are more riskier as their return fluctuate with
market fluctuation. So the best way to minimize the risk is to diversified
portfolio by including security which having positive and negative relationship.
So that overall your fluctuation in return due to market movement is less
affected.
But security market line approach says that there is hardly any gain in
extending portfolio diversification beyond 10 to 12 stocks. So from this we can
say that portfolio up to 10 to 12 stocks is good for diversified the risks.
BIBILIOGRAPHY
BOOKS
Macmillan, Risk Management. Indian Institute Of Banking & Finance. 110 pp.
WEBSITE
www.nseindia.com
www.bseindia.com
www.sebiindia.com
www.yahoofinance.com
www.mutualfunds.com
www.bse30.com
Search Engine
www.google.co.in